Alternative company structures

I ran into this Ask HN post from Dave Snider, which asks about alternative company structures:

Long story short, I’m building a new product and will likely launch it as a yearly SaaS with a permissive license. I’m later in my career and am mostly building it for fun, but I think it has potential to be a good, small business that I’d have fun fiddling with for a long time.

I went through and set up the usual LLC, but was curious about how I could set it up to be a member or worker-owned company. Has anyone done anything like that from the beginning? Should I just worry about this later?

This is something that I’ve been wondering about ever since going to DazzleCon 2017 from Zebras Unite. That group had a lot of people building organizations with alternative structures.

Some interesting comments

On the Ask HN post, there were a couple comments that I thought were good ways to think about this.

Non-profit owning the for-profit

The key thing was to keep the SaaS-y bit as boring as possible, which meant a corporation. This is in Europe but the equivalent would be Delaware C corp.

Shares in the corporation were then given to the wrapping organization (in my case the foundation, but this could be more-or-less any legal structure that can have assets). Downside is two sets of accounts, upsides are that M&A gets a ton easier later on, and taking on employees is simple and not colored by the legal quirks of the parent organization. The potential complexity of SaaS accounting (revenue recognition, R&D credits, etc) is also kept inside a simple, normal corporation which every CPA is super-familiar with, so you’re not consulting niche experts every time something new comes up.

This is a model I’ve seen a few places where there’s an operating entity, and a non-profit of some sort that holds the assets and uses the profits. Novo Nordisk has a split legal structure, as well as Mozilla.

It isn’t exactly what Dave was asking about, but it’s a common structure that seems reasonably widely used.

Profit sharing

I established a limited liability company (LLC) for a business venture initiated with friends. My objective was to ensure that all contributors received a fair share of the equity while maintaining a simplified structure for tax purposes. Additionally, I wanted to ensure that equity shares did not confer voting rights, functioning instead as profit-sharing interests. Legal counsel assisted in structuring the entity as a single-member LLC, where I am the sole owner, with profit-sharing units allocated to other contributors. This arrangement entitles contributors to a defined percentage of the company’s profits and proceeds from events such as a sale of the company.

This is a path we’ve taken with Read the Docs, where we specify a profit sharing agreement with everyone on the team who works there. This doesn’t currently transfer to a longer term ownership of profit, but I think there’s a lot of merit to this as opposed to equity. I’m not an accountant, but I believe it avoids a lot of the tax issues that come with equity grants, but again haven’t done permanent grants that might trigger a tax liability at this point in our organization.

I don’t have any great links for other folks that have done this, but I know it’s a somewhat common structure in venture debt and non-traditional investment funding agreements to take a percentage of profit or revenue after a certain time period.

My worries

I think there is a beauty to the idea of sharing ownership with the membership of a service. Dave mentioned this in the comments:

Open source just gives away the code, without setting up resources for the people who work on it. If I charge for the service, which is owned by the members, I could presumably pay upkeep (hosting, dedicated workers…etc).

This is a beautiful vision, but I think it would be hard implement in practice. I’m trying to imagine how a pitch like this might work. Do you offer the customer/members some kind of profit sharing? A discount on future services?

Given that customers often want to avoid lock-in on any purchasing decision, it seems hard to build a service that has a larger up front psychological and legal commitment. I love the idea of getting bonus points in life for building structures with collaborative ownership, but realistically most people and businesses only want a simple “buy a service that I can cancel” relationship.

That said, I’d love to see someone try it! I think it could work well in a niche environment, or something like a Kickstarter where people feel they helped bring something into being.



Hey there! I'm Eric and I work on communities in the world of software documentation. Feel free to email me if you have comments on this post!